SGC.L Regulatory News (SGC)

29 June 2011

Stagecoach Group plc - Preliminary results for the year ended 30 April 2011

Business highlights

·; Strong Group performance delivering good returns for shareholders

o Adjusted earnings per share* up 27.3% to 23.8p

o Full year dividend up 9.2% to 7.1p

·; Completing review of capital structure - will report conclusions in August 2011

·; Further megabus.com expansion driving revenue growth in North America

·; Sector-leading profit margin and good passenger volume growth trends at UK Bus

·; UK Rail underpinned by operational delivery and customer satisfaction

·; Shortlisted for Greater Anglia and West Coast rail franchises; Virgin Rail Group in discussions about a franchise extension at West Coast

·; Positive outlook for the Group's greener, smarter public transport services

Financial summary

* See definitions in note 25 to the condensed financial statements

Commenting on the results, Chief Executive, Sir Brian Souter, said: 

"We are seeing growing demand for our bus and rail services in the UK and North America, with further evidence of modal shift as consumers look for better value and more convenient transport alternatives to the rising cost of motoring and increasing road congestion.

"The strong results we have achieved across the Group are the result of our successful organic growth strategy. We are focused on providing value-for-money products, continuing to invest heavily in our networks, and harnessing the power of the Internet, new technology and social media to attract new customers and make it easier for people to access our services.

"We look forward with confidence to the year ahead. Public transport is central to supporting economic growth and meeting the global challenge of climate change. In the UK, high quality public transport will be at the heart of the successful delivery of the London 2012 Olympic and Paralympic Games. We believe the outlook for our bus and rail services is positive."

Enquiries to:

Analysts

Martin Griffiths, Group Finance Director +44 (0) 1738 442111

Ross Paterson, Director of Finance & Company Secretary +44 (0) 1738 442111

Media

Steven Stewart, Director of Corporate Communications +44 (0) 1738 442111

or +44 (0) 7764 774680

Smithfield Consultants

John Kiely +44 (0) 20 7360 4900

Copies of this announcement are available on the Stagecoach Group website at

www.stagecoachgroup.com/scg/ir/finanalysis/reports/2011

Chairman's statement

I am delighted to report that the Group has continued its good performance. We have achieved revenue growth in all of our divisions in the UK and North America as a result of our focus on safe, good value, high quality bus and rail travel.

The Group's success is underpinned by the quality and breadth of its management team which, as well as reducing costs in responding to changing circumstances, has continued to pursue new opportunities whether those be new, fast-growing services such as megabus.com or acquisitions such as the October 2010 purchase of the under-performing East London bus business. At the same time, management has maintained a focus on strong operational delivery and customer satisfaction.

We took forward-looking decisions during the economic downturn to continue to invest heavily in our services, and to maintain focus on operational performance, customer service and offering value-for-money travel options to our passengers. This has supported organic growth across our transport operations as economic conditions have improved.

Positive trends in the first half of the year have continued and the Group has achieved good revenue and profit growth in the full year. Revenue for the year to 30 April 2011 was £2,389.8m (2010: £2,164.4m). Total operating profit (before intangible asset expenses and exceptional items) was up 25.1% at £240.2m (2010: £192.0m), reflecting increased profit in all divisions. Earnings per share before intangible asset expenses and exceptional items were 27.3% higher at 23.8p (2010: 18.7p).

In line with the Group's good performance, the Directors have proposed a final dividend of 4.9p per share, giving a total dividend per share for the year up 9.2% at 7.1p (2010: 6.5p). The proposed final dividend is payable to shareholders on the register at 2 September 2011 and will be paid on 5 October 2011.

The Group is well funded and its net debt has reduced during the year ended 30 April 2011. This is a further tangible sign of the Group's success. We are completing our review of the Group's capital structure and we expect to announce the conclusions of our review at or before the Group's Annual General Meeting at the end of August 2011.

Stagecoach has made a good start to the financial year ending 30 April 2012 and current trading remains in line with our expectations.

I would like to pay tribute to our former Chairman Bob Speirs, who retired from the Board on 31 December 2010 after almost 16 years as a director. His insight, experience and wise advice have been invaluable to the business and I would like to extend to him the gratitude and best wishes of the Board for the future.

In May 2011, Will Whitehorn joined the Board as a non-executive director of the Company. His background in brand development, together with his wide-ranging experience across a range of business sectors will bring valuable insight as we look to expand the reach of our products and services.

On behalf of the Board, I would like to congratulate Sir Brian Souter, the Group's Chief Executive, on being awarded a knighthood in the recent Queen's Birthday honours list for his service to transport and the voluntary sector.

Political support and the environment for public transport are strong, and the Group is in a good position to benefit from significant opportunities ahead. Our employees, who serve the millions of customers we welcome on board our bus and rail services every day, are a key part of our success and are critical to our future. I would like to thank them for their strong contribution over the past year and I am confident that the Group will continue to deliver for our customers and shareholders.

Sir George Mathewson

Chairman 29 June 2011

Chief Executive's review

The Group has achieved continued strong financial and operational performance in the year ended 30 April 2011. All divisions have reported increased revenue and operating profit.

Revenue by division is summarised below:

Operating profit by division is summarised below:

The Group has had a good year, attracting more people to our greener, smarter bus and rail services. We are seeing growing evidence of modal shift as consumers look for better value and more convenient transport alternatives to the rising cost of motoring and increasing road congestion.

We are focused on providing value-for-money products, continuing to invest in our networks, and harnessing the power of the Internet, new technology and social media to attract new customers and make it easier for people to access our services. The strong growth of megabus.com highlights the potential to continue to grow the market for public transport. The skill and commitment of our people at all levels of the business have been key to our success.

Across the Group, we are progressing well with our sustainability strategy to deliver more energy and carbon efficient businesses. Our investment in environmental management systems, regenerative braking on trains, our leading position on hybrid electric buses, and the introduction of eco-driving bus technology are reducing our carbon footprint and supporting our focus on cost control.

The core strength of our business means we have been able to manage the impact of reduced public spending on transport, ensuring we continue to offer attractive fares and networks.

UK Bus (regional operations)

Our UK Bus regional operations connect communities in more than 100 towns and cities across the UK on networks stretching from the Highlands and Islands of Scotland to south-west England. These include major city bus operations in Liverpool, Newcastle, Hull, Manchester, Oxford, Sheffield and Cambridge.

Financial performance

The financial performance of the UK Bus (regional operations) division for the year ended 30 April 2011 is summarised below:

* See definitions in note 25 to the condensed financial statements 

Revenue from our UK Bus regional operations for the year ended 30 April 2011 was up 2.1% to £893.6m, compared to £875.4m in the prior year. Like-for-like revenue growth was 2.1%. Operating profit was up 21.4% at £153.1m (2010: £126.1m) which includes the benefit of a £14.3m year-on-year reduction in fuel costs. Operating margin was 17.1%, compared to 14.4% in 2010.

Passenger revenue growth

We have delivered further revenue and passenger volume growth at our UK Bus regional operations. Over many years, our UK Bus (regional operations) volume growth and profit margins have been amongst the best in the sector and we also offer the best value fares of any major operator. We have seen increasing signs of modal shift from car to local bus services as road congestion, the high price of fuel and Government "green taxes" impact on the cost of motoring. Consumers are seeing the convenience and financial benefits of switching to a better value and more sustainable mode of transport. Revenue growth in the year was consistent with our plan for modest fare rises. Like-for-like passenger volume growth for the year was 0.9%. Our value fares strategy and focus on organic growth has ensured we have a vibrant bus business in the UK and we believe the environment for public transport will support continued modal shift to bus and coach travel.

Cost control

Reduced public sector spending is resulting in reductions in concessionary revenue, and cuts by local authorities in tendered services. All bus operators have also faced increasing pressure on fuel and energy costs and from April 2012, will see a reduction in Bus Service Operators' Grant (BSOG). However, we have maintained a strong commercial bus network through a mixture of fare increases at or below inflation and some limited mileage reductions. We will continue to manage the impact on our business proactively and take these factors into account in future decisions on bus services, tenders and fares, while working hard to minimise the effect on our passengers.

Regulatory developments

The Group continues to respond to the Competition Commission on its consideration of the local bus market in the UK (excluding London and Northern Ireland). The Commission published its Provisional Findings and Possible Remedies in May 2011. Local bus services in the UK have been subject to detailed and unprecedented scrutiny by the competition authorities for more than eighteen months and we note that the Commission is not proposing any fundamental change to the regulatory structure of the industry. At this stage, the Commission has ruled out both price controls and forced divestments of bus operations. In addition, the Commission has acknowledged that there are existing agencies, mechanisms and legislation, which can address a number of its recommendations.

Outlook

UK Bus operators undoubtedly face a number of challenges in the months ahead. We forecast that in the year ending 30 April 2012, concessionary revenue and tendered revenue will reduce by around £15m and that fuel costs will increase. However, we remain positive on the prospects for the Division. The flexibility we have on fares and service patterns, the rising cost of running a private car and the strength of our management team, mean that the Division is well positioned to at least deliver operating profit in the year to 30 April 2012 at a level similar to that of the year to 30 April 2011. Whilst fares will increase at a higher average rate than the previous year, our services will remain good value.

UK Bus (London)

We are the third largest operator in the London bus market, with an estimated 15% share of that market. The business operates bus services under contract to Transport for London, receiving a fixed fee (subject to adjustment for certain inflation indices) and taking the cost and capital risk. The business operates from 10 depots and has a fleet of around 1,250 buses serving routes in and around east and south-east London.

Financial performance

The financial performance of UK Bus (London) since the Group acquired it in October 2010 to 30 April 2011 is summarised below:

The reported operating loss of £5.9m is after taking account of (i) a £3.2m release from the provision that was recorded as at acquisition in respect of acquired customer contracts and (ii) £9.9m of costs in relation to re-basing staff terms and conditions.

In October 2010, the Group completed the acquisition of the bus business formerly owned by East London Bus Group Limited (in administration), acquiring four companies that together operate the business. The cash paid in respect of the acquisition was £59.5m, inclusive of amounts to settle inter-company liabilities payable by the acquired business to its former parent company. The closing enterprise value (being the aggregate of the consideration paid and the net debt assumed with the acquisition) on the date of completion was £56.0m, taking account of the cash in the acquired business at completion. We operated a successful and profitable bus business in London for several years and are pleased to re-enter the London bus market at an attractive price. 

We have made significant progress in restructuring the acquired business to both maximise synergies with the wider Group and tackle the structurally high cost base. Our first step was to put in place a new management team, comprising experienced Stagecoach personnel from other areas and also incumbent members of the London management team. The head office accounting and administration structure of the business was then reduced, with all accounting functions being integrated with our Shared Service Centre in Stockport.

We have held discussions with the employee trade union representatives and are pleased with the constructive response to our plans to improve employee productivity and reduce unit costs significantly, and in doing so secure the business and jobs for the future. The results include the financial cost of implementing these changes in working terms and conditions and we will see material reductions in future payroll costs.

We have also undertaken a full review of the integrity of the financial models supporting the contract costing and budgeting for bids and set realistic return criteria for future tenders. As we have previously reported, it will take some time for existing low margin contracts to work through to re-tender, and the business has already lost some sizeable contracts which will impact from the year to 30 April 2012.

We have recently announced the planned closure of one of the ten bus depots from which the business operates. This property rationalisation plan recognises the significant extra capacity that the business has and will allow it to improve efficiency by better spreading overheads yet leaving sufficient capacity for future requirements.

In the next six months our focus remains on the cost base of the business, in particular fleet maintenance costs and working practices, where we anticipate further economies and efficiency improvements can be achieved.

As a sign of our confidence in the future of the business, in January 2011 we announced plans to lease more than 160 new state-of-the-art vehicles for our London operations. Our long-term aspirations are for mid to upper single-digit operating margins. While we do not underestimate the challenges we face in improving the financial performance of the acquired business, our plans are firmly on track and we remain confident we can deliver a good return to shareholders from the acquisition.

Outlook

As we anticipated when we acquired the London Bus Division, the annual rate of revenue is likely to fall in the year ending 30 April 2012 but there is good potential to generate a small operating profit by reducing costs and relinquishing some under-performing contracts.

North America

Stagecoach provides a range of transport services in North America. Our businesses include the budget coach brand, megabus.com, commuter/transit services, inter-city services, tour and charter, and school bus operations.

Financial performance

The financial performance of the North America division and North America joint ventures for the year ended 30 April 2011 is summarised below:

Revenue from our wholly owned North American operations for the year to 30 April 2011 was up 8.3% at US$461.7m (2010: US$426.3m), and the equivalent like-for-like revenue was up by 8.5%. Operating profit was US$30.2m (2010: US$14.6m), resulting in an operating margin of 6.5%, compared to 3.4% the previous year. The increased profit and margin reflects the benefits of revenue growth and reduced fuel costs. Converted to sterling, revenue for the 12 months to 30 April 2011 was £295.1m (2010: £266.1m). Operating profit for the 12 months was £19.3m (2010: £9.1m).

megabus.com

megabus.com revenue in the year ended 30 April 2011 was US$75.4m (2010: US$45.1m) and it continues to be the growth engine of our business in North America. Passenger demand is strong and we are continuing to expand our range of destinations. megabus.com now covers around 60 cities from hubs in Chicago, New York, Philadelphia, Washington D.C and Pittsburgh. Our strategy of using transport hubs has helped support the rapid expansion of the product, maximise the productivity of our fleet and control start-up costs. The market for budget travel has bucked the trend of the wider economy and we have created more than 250 jobs over the past two years. Moving forward, we expect megabus.com to account for an increasing proportion of our North American business and we are now focusing on the best strategy to exploit further growth opportunities in other parts of North America.

Other operations

We continue to take steps to match services to demand in the non-megabus.com parts of our business, as well as focusing on cost control. We have a flexible business model and have taken action to reduce costs and miles operated, with vehicles in charter operations redeployed as part of our megabus.com growth strategy. The economic environment has improved and in the second half of the year we have seen positive revenue trends.

Outlook

We are looking to grow megabus.com revenue from US$75.4m in the year ended 30 April 2011 to over US$110m in the year to 30 April 2012. This will still largely be served by our existing depot infrastructure but we are already working on the further expansion of megabus.com beyond April 2012, which might involve new partnerships and/or infrastructure. New megabus.com routes are expected to be loss-making initially, which partly masks the success of the established routes.

Although megabus.com offers the greatest potential to grow the North American business, the remainder of the business is well positioned to offset higher fuel costs. The rate at which megabus.com is rolled out to new locations will have a bearing on the North America operating profit for the year to 30 April 2012 with a more rapid roll-out resulting in higher start-up losses. Overall, however, the Division remains well placed to deliver a good operating profit in the year ending 30 April 2012.

UK Rail

The Group has major rail operations in the UK, operating both the South Western and East Midlands rail franchises. South Western incorporates the South West Trains and Island Line networks. South West Trains runs around 1,700 train services a day in south-west England out of London Waterloo railway station, while Island Line operates on the Isle of Wight. The South Western franchise is expected to run until February 2017. The East Midlands Trains franchise comprises main line train services running to London St Pancras, regional rail services in the East Midlands area and inter-regional services between Norwich and Liverpool. The franchise is expected to run until 31 March 2015.

Financial performance

The financial performance of the UK Rail division for the year ended 30 April 2011 is summarised below:

Revenue from our UK Rail subsidiaries for the year to 30 April 2011 was up by 4.2% to £1,070.0m (2010: £1,026.7m). On a like-for-like basis, revenue excluding our tram operations is up 6.0%. Operating profit was £48.4m (2010: £41.6m), giving an operating margin of 4.5% (2010: 4.1%). We have benefitted from improving passenger volume trends at our South Western Trains and East Midlands Trains franchises. South Western Trains, which makes premium payments to the Department for Transport ("DfT"), qualifies for revenue support payments under the terms of its contract as revenues remain below that forecast when the contract was originally awarded. The first revenue support payment was received in March 2011, which covered the period from 1 April 2010. As expected, East Midlands Trains has made a loss during the year. It qualifies for revenue support from November 2011.

Operational performance

Operational performance at our East Midlands Trains and South Western Trains franchises is consistently amongst the highest of the UK train operators. East Midlands Trains continues to run the most punctual trains of any long distance franchised train operator in the UK. For the year to 31 March 2011, punctuality1 on East Midlands Trains was 92.1%, compared to 87.7% for long-distance operators. South Western Trains recorded a record punctuality figure of 93.7% for the same period. The average for London and South East operators was 91.1% and was 90.9% for all UK franchised rail operators.

Customer satisfaction

Satisfaction amongst our passengers also remains high. The latest National Passenger Survey, carried out during Autumn 2010, shows South West Trains passengers are amongst the most satisfied in the London and South East region. Overall satisfaction was 87% compared to the London and South East average of 83%. At East Midlands Trains, satisfaction is at its highest ever level, with 88% of passengers satisfied, compared to a long-distance average of 87%, marking the biggest improvement of any UK rail operator. Satisfaction with punctuality continues to be rated highly on both franchises.

Policy & regulatory developments

The Group has engaged extensively with the DfT and Sir Roy McNulty on the way forward for reform of the rail industry. The final report by Sir Roy McNulty on value for money in the UK Rail industry was published in May 2011, and we believe its recommendations are a major opportunity to unlock further growth in the years ahead and deliver a more efficient, more passenger-focused railway. We are supportive of efforts to reduce industry costs and we believe our achievements at our own franchises demonstrate our ability to drive out efficiencies in areas under our control, whilst maintaining high levels of performance and customer satisfaction. We would welcome radical reform to deliver greater alignment of track and train, which we believe would benefit all stakeholders in the UK rail network. Our vision of vertical integration does not necessarily envisage the train operator taking ownership of the infrastructure or delivering major infrastructure projects but rather it foresees the train operator having responsibility for infrastructure maintenance and renewals thereby improving accountability and efficiency. We would relish the opportunity to participate in a pilot of such vertical integration. We look forward to working with the Government to improve the railway for the benefit of passengers, taxpayers and our shareholders.

As part of the Comprehensive Spending Review, the Government retained the Retail Price Index ("RPI") +1% formula for regulated fare increases for January 2011. However, this will change to RPI +3% from January 2012 as part of a wider policy to shift the funding of the railways more towards the passenger, so that the taxpayer pays less. All additional income raised by the decision will be passed through by train operating companies to Government. Regulated fares account for roughly half of all rail journeys and we will continue to offer a range of good value fares to suit the different budgets of our customers.

Rail franchising

The Government announced in December 2010 its early thoughts on rail franchise reform and its intention for the tendering of specific franchises. We look forward to seeing its detailed proposals for reform and we will continue to evaluate franchise opportunities as they emerge in light of these policy decisions.

As a major rail operator with a good track record of delivery, we were pleased to have been shortlisted for the Greater Anglia rail franchise and, in partnership with Virgin, for the new West Coast franchise. The Greater Anglia franchise is expected to commence in February 2012 and will run for between 17 and 29 months. The current West Coast franchise is due to end on 31 March 2012. However, the start of the new West Coast franchise has been delayed until 9 December 2012. Virgin Rail Group has entered into bilateral negotiations with the DfT to agree acceptable terms for the extension of the current franchise to 8 December 2012. The new West Coast franchise is expected to commence in December 2012 and will run for 14 years. Greater Anglia and West Coast are very different franchises, each with their own specific challenges, priorities and opportunities. We will continue to work with local communities and other stakeholders to develop sustainable bids to deliver the Government's specification, improve rail services for customers, and ensure value for money for taxpayers.

The new Greater Anglia franchisee will not take significant passenger revenue risk, consistent with the short-term nature of the franchise. It will, however, take cost risk and will operate the train service during the London 2012 Olympics.

The new West Coast franchise will likely include a risk-sharing mechanism based on GDP rather than revenue and will give the train operator some increased flexibility to change timetables and fares.

Outlook

Operating profit in the UK Rail Division has been expected for some time to reduce in the year ending 30 April 2012 and this remains the case given the change in the premium payments to Government. Thereafter, the availability of revenue support should help limit the risk of profit falling short of expectations but the scope to significantly increase UK Rail profit (new franchise wins excepted) is already recognised as being limited.

Joint Ventures

Virgin Rail Group

The Group has a 49% shareholding in Virgin Rail Group ("VRG"), which operates the West Coast Trains rail franchise. The other shareholder in VRG is the Virgin Group of Companies. The current franchise runs through until 2012.

Financial performance

The Group's share of the financial performance of Virgin Rail Group for the year ended 30 April 2011 is summarised below:

Our share of VRG's profit after tax for the 12-month period was £28.4m (2010: £19.2m). Our share of operating profit was £39.5m (2010: £25.5m), our share of finance income was £0.2m (2010: £0.2m) and our share of taxation charges was £11.3m (2010: £6.5m).

Passenger revenue growth

VRG has continued to achieve strong passenger revenue growth. Improved journey times, more frequent services, and good value deals, have all had a positive impact on passenger trends. Passenger volume growth has been well ahead of other long-distance train operators, and Business and First Class traffic has grown in particular as the economy has improved and better infrastructure performance has delivered more reliable services.

Business development

VRG has a proven track record over the last 14 years of providing better rail services for customers, including the renewal of the entire train fleet and the introduction of a high-frequency timetable. In the last six years alone, annual passenger numbers have doubled from 14 million to over 28 million and Virgin is now delivering industry-leading levels of customer satisfaction. VRG is negotiating an extension to its existing West Coast franchise and has been shortlisted for the new West Coast franchise, as explained in the UK Rail section above. VRG is committed to submitting a strong bid to retain the West Coast franchise, building on the investment and customer improvements made in recent years and working with local communities along the route, as well as other stakeholders, to develop these plans.

Outlook

VRG's profit in the year ended 30 April 2011 benefited from some contractual settlements with Network Rail that will not repeat in the year to 30 April 2012. While this might mean a fall in short-term profit, the main strategic focus of VRG is now on the opportunities presented by the potential franchise extension and the new franchise which VRG is bidding for.

Twin America

In North America, Stagecoach operates a joint venture, Twin America LLC, with CitySights NY. The joint venture, which was established on 31 March 2009, operates sightseeing services in New York under both the Gray Line and CitySights brands. The Group holds 60% of the economic rights and 50% of the voting rights in the joint venture. Twin America LLC is headed by a Chief Executive and overseen by a joint Board.

Financial performance

We are pleased by the strong financial performance of our Twin America joint venture in the year ended 30 April 2011. The business has benefited from an increased number of visitors to New York City. Our share of operating profit for the year increased to US$15.2m (2010: US$14.2m). The tax treatment of our share of profit is such that the joint venture's own profit is partially taxed but an additional tax charge falls on the joint venture partners and the effect of that on the Group is included within "taxation" in the consolidated income statement.

Twin America was notified by the United States Surface Transportation Board ("STB") in February 2011 that its application for formal approval of the joint venture had not been approved. The STB confirmed that the joint venture, as currently structured, did require its approval and therefore, having decided not to approve the joint venture, the STB gave Twin America the option of separating the business, assets and management of the joint venture. Alternatively, the joint venture could divest its interstate services, which account for around 1% of the joint venture's revenues. The latter option would remove the transaction from STB jurisdiction and place it within the authority of the New York State Attorney General. The Chairman of the STB agreed on 9 March 2011 to grant an application for a stay of the February decision pending a forthcoming decision by the STB on Twin America's request to undertake a further detailed review of the case. Twin America believes customers have benefitted from good quality, high value, and better co-ordinated services, while the joint venture has achieved cost savings and other synergies. We will continue to assist the STB should it move forward with a fresh consideration of this matter and are prepared to present any further evidence as appropriate to help inform any future decision.

Twin America continues to look for opportunities to expand both in its current market and beyond New York. On 17 May 2011, Twin America commenced a joint venture in Los Angeles offering open top double deck, hop on hop off, sightseeing bus services and on 1 June 2011, it started to offer sightseeing tours by boat on the River Hudson around Manhattan. We believe the outlook for Twin America remains positive and we are confident of further growth in its revenue and profit.

Depreciation and intangible asset expenses

Earnings before interest, taxation, depreciation, intangible asset expenses and exceptional items (pre-exceptional EBITDA) amounted to £330.5m (2010: £283.9m) including the Group's share of its joint ventures' profit after tax. Depreciation, including non-exceptional impairment charges, for the year was £90.3m (2010: £91.9m). The income statement charge for intangible assets increased from £11.1m to £15.2m, of which £5.1m (2010: £5.1m) related to joint ventures. The year on year increase reflects amortisation of intangible assets acquired during the year, primarily as part of acquiring the East London Bus business.

Exceptional items

The following exceptional items, before taxation, arose in the year ended 30 April 2011:

• A loss of £0.1m in relation to the disposal of land and buildings.

• A gain of £4.6m being the revision to the estimated insurance provision in relation to pre-acquisition liabilities.

• A loss of £0.6m being expenses incurred in relation to the acquisition of our UK Bus (London) operations.

• A loss of £3.2m in relation to the disposal of certain operations in the United Kingdom.

• A gain of £18.5m on the release of a liability related to previous disposals of businesses.

The net effect of exceptional items was a pre-tax profit of £19.2m (2010: loss of £20.4m), of which a gain of £18.5m (2010: £3.9m) was reported as profit from discontinued operations. A tax charge of £1.3m (2010: credit of £7.4m) arose in respect of exceptional items resulting in a net after-tax gain from exceptional items of £17.9m (2010: loss of £13.0m).

Net finance costs

Pre-exceptional net finance costs increased from £30.7m to £34.5m. The ratio of pre-exceptional EBITDA to net finance costs was 9.6 times for the year ended 30 April 2011 (2010: 9.2 times), reflecting increased profit.

Taxation

The tax charge is analysed below:

Earnings per share

Earnings per share before intangible asset expenses and exceptional items were 23.8p, compared to 18.7p in 2010. Basic earnings per share increased from 15.6p to 24.6p.

Fuel Costs

The Group's operations as at 30 April 2011 consume approximately 370m litres of diesel fuel per annum. As a result, the Group's profit is exposed to movements in the underlying price of fuel.

The proportion of the Group's projected fuel usage that is currently hedged using fuel swaps is as follows:

The Group has no fuel hedges in place for periods beyond 30 April 2015.

The Group's fuel costs include the costs of delivery and duty as well as the costs of the underlying product. Accordingly, not all of the cost varies with movements in oil prices.

The Group's like-for-like diesel fuel costs for the year ending 30 April 2012 are likely to be higher than for the year ended 30 April 2011 because after taking account of the fuel hedges in place, the average fuel cost per litre will be higher.

Cash flows

The strong cash generative nature of the Group is once again highlighted by net cash from operating activities after tax of £231.8m (2010: £216.4m). Net cash outflows from investing activities were £198.2m (2010: £37.2m) and net cash used in financing activities was £49.7m (2010: £79.9m).

Net debt

Net debt (as analysed in note 19 to the condensed financial statements) reduced from £296.7m at 30 April 2010 to £280.9m at 30 April 2011.

The Group's net debt at 30 April 2011 is further analysed below:

Net cash from operating activities before tax for the year ended 30 April 2011 was £252.2m (2010: £217.1m) and can be further analysed as follows:

The impact of purchases of property, plant and equipment for the year on net debt was £164.4m (2010: £154.9m). This comprised cash outflows of £156.3m (2010: £89.2m) and new hire purchase and finance lease debt of £8.1m (2010: £65.7m). £14.7m (2010: £53.0m) was received from the disposal of property, plant and equipment.

Liquidity

The Group has comfortably complied with all of its banking covenants throughout the financial year. The Group is subject to certain market standard banking covenants, which include a limit on the level of net debt compared to EBITDA and a minimum level of EBITDA to interest, in each case as defined in the relevant agreements.

Our strong financial position is evidenced by:

• The ratio of net debt at 30 April 2011 to pre-exceptional EBITDA for the year ended 30 April 2011 was 0.8 times (2010: 1.0 times).

• Pre-exceptional EBITDA for the year ended 30 April 2011 was 9.6 times (2010: 9.2 times) pre-exceptional net finance costs.

• Undrawn, committed bank facilities analysed below totalled £491.5m at 30 April 2011 (2010: £345.9m). This included £67.9m (2010: £24.9m) that is only available for non-cash utilisation. In addition, the Group continues to secure new asset finance.

• In February 2011, the Group saw strong appetite from banks for the refinancing of its core bank facilities and entered into £510.0m of new five-year committed facilities.

• The three main credit rating agencies continue to assign investment grade credit ratings to the Group.

• The Group is cash generative and has the flexibility to vary capital expenditure and other cash outflows where appropriate.

The Group's principal lines of credit have been arranged on a bi-lateral basis with a group of relationship banks which provide bank facilities for general corporate purposes. These arranged lines of credit allow cash drawdowns to finance the Group and also include facilities which are dedicated to issuing performance/season ticket bonds, guarantees and letters of credit.

The Group's committed bank facilities and related surety arrangements as at 30 April 2011 are analysed below:

The Group's main bank facilities are committed through to 2016. The Group issued a £400m 5.75% bond in December 2009, which matures in December 2016.

The Group also maintains facilities in relation to asset finance ("Asset Finance Facilities"). Asset Finance Facilities are typically agreed in principle one year in advance and are arranged for the purpose of funding bus vehicle expenditure and for specific UK Rail operating assets. Asset Finance Facilities include finance leases, hire purchase agreements and operating leases. The terms of Asset Finance Facilities are dependent on the underlying assets and typically range between five and ten years.

Although there is an element of seasonality in the Group's bus and rail operations, the overall impact of seasonality on working capital and liquidity is not considered significant.

The rail operations maintain cash balances to meet working capital requirements and the franchise agreements restrict the transfer of this cash. Unless DfT consent is obtained, cash can only be transferred by loan or dividend to the extent that the relevant train operating company has distributable profits, and the franchise is compliant with the liquidity covenants specified in its franchise agreement.

Capital expenditure

Additions to property, plant and equipment for the year were:

Business combinations

On 14 October 2010, Stagecoach Bus Holdings Limited ("SBHL"), a Group subsidiary, completed the acquisition of the bus business formerly owned by East London Bus Group Limited (in administration). SBHL acquired 100% of the voting equity interests in four companies that together operate the acquired business.

The cash paid in respect of the acquisition was £59.5m, comprising £5.4m for the entire share capital of the acquired companies and £54.1m to settle inter-company liabilities payable by the acquired companies to their former parent company. Further details are given in note 14 to the condensed financial statements.

The Group has made no other material acquisitions in the year ended 30 April 2011.

Shares in issue

The weighted average number of ordinary shares during the year used to calculate basic earnings per share was 717.5m (2010: 716.2m). The number of ordinary shares ranking for dividend at 30 April 2011 was 717.9m (2010: 717.8m), with a further 2.2m (2010: 2.3m) of ordinary shares held by employee trusts and not ranking for dividend.

Net assets

Net assets at 30 April 2011 were £246.2m (2010: £12.7m) with the increase primarily reflecting the strong results for the year, movements on cash flow hedges of £23.4m after tax and actuarial gains on Group defined benefit pension schemes of £52.5m after tax.

Retirement benefits

The reported net assets of £246.2m (2010: £12.7m) that are shown on the consolidated balance sheet are after taking account of net retirement benefit liabilities of £97.1m (2010: £202.1m) as analysed in note 15 to the condensed financial statements.

The Group recognised pre-tax actuarial gains of £76.5m (2010: losses of £138.7m) on Group defined benefit pension schemes in the year ended 30 April 2011.

Capital

The Group regards its capital as comprising its equity, cash, gross debt and any similar items. As at 30 April 2011, the Group's capital comprised:

The Group manages its capital centrally. Its objective in managing capital is to optimise the returns to its shareholders whilst safeguarding the Group's ability to continue as a going concern and as such its ability to continue to generate returns for its shareholders. The Group also takes account of the interests of other stakeholders when making decisions on its capital structure.

Current trading and outlook

I firmly believe the improving trends mean the Group can look forward with confidence to the year ahead. We will continue to consider opportunities in the transport sector to create value for our shareholders. The strong fundamentals of the Group ensure we are well positioned to take advantage of emerging opportunities for growth.

Public transport is central to supporting economic growth and meeting the global challenge of climate change. In the UK, high quality public transport will be at the heart of the successful delivery of the London 2012 Olympic and Paralympic Games. We believe the outlook for our bus and rail services is positive. I believe we have the people, the products and the passion for public transport that will deliver for our customers and our shareholders.

Sir Brian Souter

Chief Executive 29 June 2011

CONSOLIDATED INCOME STATEMENT

The accompanying notes form an integral part of this consolidated income statement.

Interim dividends of £15.8m were paid during the year ended 30 April 2011 (2010: £46.6m). A final dividend of 4.9 pence per share has been proposed in respect of the year ended 30 April 2011 (2010: Nil).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)

The retained earnings deficit of £217.4m (2010: £433.5m) is the consolidated position. The holding company's distributable reserves as at 30 April 2011 under UK GAAP were £453.4m (2010: £376.8m).

The accompanying notes form an integral part of this consolidated balance sheet.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The accompanying notes form an integral part of this consolidated statement of changes in equity.

CONSOLIDATED STATEMENT OF CASH FLOWS

Cash and cash equivalents for the purposes of the consolidated cash flow statement comprise cash at bank and in hand and other short-term highly liquid investments with maturities at the balance sheet date of twelve months or less.

The accompanying notes form an integral part of this consolidated cash flow statement.

NOTES

These results are extracts of consolidated financial statements that have been prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations as adopted by the European Union (that therefore comply with Article 4 of the EU IAS Regulation), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The accounting policies and methods of computation adopted are consistent with those used in the last set of published financial statements, with the exception of those highlighted below.

The following new standard has been applied by the Group for the first time for the financial year beginning 1 May 2010:

·; IFRS 3 (revised), 'Business combinations'. The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with the previous version of IFRS 3. For example, all acquisition-related costs should be expensed. The standard was applied to the acquisition of the East London bus business on 14 October 2010. Acquisition-related costs of £0.6m have been recognised in the consolidated income statement, which previously would have been included in the consideration for the business combination.

The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 May 2010, but do not have any significant effect on the consolidated financial statements of the Group:

·; Amendments resulting from April 2009 Annual Improvements to IFRSs

·; IFRS 1 (revised), 'First time adoption of IFRSs - revised and restructured'

·; IFRS 1 (amended), 'First time adoption of IFRSs - amendments relating to oil and gas assets and determining whether an arrangement contains a lease'

·; IFRS 2 (amended), 'Share-based payment - amendments relating to group cash-settled share-based payment transactions.

·; IAS 27 (amended), 'Consolidated and separate financial statements - consequential amendments arising from amendments to IFRS 3'

·; IAS 28 (amended), 'Investments in associates - consequential amendments arising from amendments to IFRS 3'

·; IAS 31 (amended), 'Investments in joint ventures - consequential amendments arising from amendments to IFRS 3'

·; IAS 32 (amended), 'Financial instruments: presentation - amendments relating to classification of rights issues'

·; IAS 39 (amended), 'Financial instruments: recognition and measurement - amendments for eligible hedged items'

·; IAS 39 (amended), 'Financial instruments: recognition and measurement - amendments for embedded derivatives when reclassifying financial instruments'

·; IFRIC 17, 'Distributions of non-cash assets to owners'

·; IFRIC 18, 'Transfers of assets from customers'

Where appropriate, comparative figures for the previous year have been adjusted to conform to changes in presentation. These changes have no impact on the consolidated income statement or on consolidated net assets.

The Board of Directors approved this announcement on 29 June 2011.

The principal rates of exchange used to translate the results of foreign operations are as follows:

Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The Group is managed, and reports internally, on a basis consistent with its four continuing operating segments, being UK Bus (regional operations), UK Bus (London), North America and UK Rail. The Group's IFRS accounting policies are applied consistently, where appropriate, to each segment.

The segmental information provided in this note is on the basis of four operating segments as follows:

The basis of segmentation is consistent with the Group's last annual financial statements for the year ended 30 April 2010, except that the new UK Bus (London) operating segment consists of the East London Bus business acquired by the Group in October 2010. Management has determined that the East London Bus business should be treated as a separate operating segment as it is managed separately to our UK Bus regional operations and is reported separately to the Board of Directors, reflecting the different risk profile of the business.

The Group has interest in three trading joint ventures, Virgin Rail Group that operates in UK Rail, Citylink that operates in UK Bus (regional operations) and Twin America LLC that operates in North America. The results of these joint ventures are shown separately in note 3(c). The Group has an interest in a non-trading joint venture, New York Splash Tours LLC, which operated in North America until trading ceased in the year ended 30 April 2010.

Due to the nature of the Group's business, the origin and destination of revenue is the same in all cases. As the Group sells bus and rail services to individuals, it has few customers that are individually "major". Its major customers are typically public bodies that subsidise or procure transport services - such customers include local authorities, transport authorities, Transport for London and the UK Department for Transport.